I'm a Fellow at the Adam Smith Institute in London, a writer here and there on this and that and strangely, one of the global experts on the metal scandium, one of the rare earths. An odd thing to be but someone does have to be such and in this flavour of our universe I am. I have written for The Times, Daily Telegraph, Express, Independent, City AM, Wall Street Journal, Philadelphia Inquirer and online for the ASI, IEA, Social Affairs Unit, Spectator, The Guardian, The Register and Techcentralstation. I've also ghosted pieces for several UK politicians in many of the UK papers, including the Daily Sport.

Note For Those Trying A Tax Inversion Deal; Don't Look At Ireland, Look Anywhere In The EU

With PfizerPfizer trying to do this deal with AstraZenecaAstraZeneca the whole subject of tax inversions is coming up for analysis in the financial press. And there’s one little piece of advice that I might pass on to those who are thinking about trying to do such a deal to escape the clutches of the dreadful US corporate taxation system. Don’t go and look at Ireland or Irish companies. Go and look anywhere at all in the EU: for we’ve this Single Market thing nowadays.

The basic idea of a tax inversion is really rather simple. If the US corporate taxation system is becoming a burden on a company then obviously, the thing to do is to move the domicile of the company so that it’s no longer subject, for its outside the US operations at least, to that US corporate taxation system. Unfortunately this is becoming harder. If you try to just move the company out of the US then the IRS is going to frown very hard at that. To the point that you have to (almost, but not quite) dissolve the company, pay any tax that might be due in the future and then reconstitute the company again. Given that any company of any age is going to have substantial unrealised gains hidden in it this is really a very unattractive option.

The better way to do it is an “inversion”. Go and buy some foreign company but structure the deal so that it’s either the foreign company taking over the American, or some new holding company somewhere which then owns both of the two “merging” companies. If more than 20% of the entire operation ends up being owned by those foreigners then this can mean that the original US company moves out from being US domiciled and thus frees itself from the US corporate tax code. And this without triggering massive demands from the IRS as everyone waves bye bye.

The WSJ is reporting that US companies that are thinking of doing this are scouring the Irish corporate registers to identify obvious targets/collaborators. This is, I’m afraid, an error, for we have this Single Market thing over here now. They should be looking anywhere and everywhere in the EU.

When bankers were shopping Irish pharmaceutical company ElanElanCorp. a year ago, they touted its Irish home along with the cash flow from its marquee multiple-sclerosis drug, people involved in the deal say.

American companies continue to scour the Irish corporate registry for tickets out of the U.S. tax system, bankers say.

The mistake is to think that only a merger or takeover with an Irish registered company will lead to that highly desired, even coveted, Irish domicile for the final company. This isn’t true at all, for the Single Market means that we have the perfect freedom of movement of goods, labour, services, capital and companies. Thus any company, domiciled anywhere in the European Union, can up sticks any time it likes to create a domicile anywhere else within the European Union. Thus a US company can purchase or merge with a Slovenian, Estonian, German company and end up with an Irish domicile if that is what is wanted.

The importance of this is that there are only so many companies on the Irish corporate register that are possible targets for this sort of manouevre. They thus have a scarcity value and at least some of the tax inversion benefits will end up in the pockets of that Irish company. This isn’t quite what the US company is hoping to achieve. If, however, one treats all companies in the EU as at least potentially having Irish domicile, which all companies in the EU do potentially have, then that premium rather gets competed away and the benefits of the deal will flow through to the shareholders of the US corporation. Which is where the US management would like them to be of course.

The important thing here is that the European Union’s Single Market really is a single market. Any company can move over the internal to EU but international boundaries without hindrance or limit. Thus the potential targets for a tax inversion include each and every corporation in the EU, not just those on the Irish corporate register.

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